Big Mistakes is a book which is capable to save your thousands and millions from crashing in investment places. This book teaches us about the biggest mistakes made by legends and what they want us to learn from that.
Legends like Warren Buffett, Bill Ackman, Stanley druckenmiller and the legendary Bejamin Graham.
What mistakes have they committed which bought them a big loss and the highlighting key points which can make us overall a better and safe investor.
1. Warren Buffett and The Availability Heuristic
One of the greatest investors of all time, Warren Buffett once took a big acquisition in 1991 of HH Brown which proved to be great success. Followed by another shoe company which he acquired in 1992 that is Lowell shoe which was a great success too.
But in 1993, dexter shoe which Buffett sir went into was having the similar look alike features but it crashed which in 6 years Berkshire had to sell.
Here you need to understand about ” Availability Heuristic ” : It is a mental shortcut that relies on immediate examples to come to a persons mind when evaluating something.
Companies which Looks similar are Not reliable to give similar benefits.
Always be careful while investing for long term and never rely on previous successful examples.
2. Mark Twain and The Law of Holes
It is known that famous investor Mark Twain made as many number of mistakes as his books sold. He once invested in a new invention of a machine which was intended to replace another human operated machine.
He kept investing for a long time knowing it is just going in loss and no return. This way he broke the law of holes.
The law of holes states that : ” If you find yourself in one, quit digging “. You must know your down side and willing amount to lose. Once touched you must sell, come out of it.
Pre decide how much are you willing to lose once you find a hole.
Always pre decide your limits either in percentage or in number but also remember some people might disagree saying greater the risk, higher the profit.
3. Bill Ackman and Ego
Third takeaway from Big Mistakes is the story of Bill Ackman. He is one of the most successful activist investors of all time.
Activist investors are those who can put pressure on the top management of the company they invested in to control the shares direction.
With a sequence of series, you will get to know how his ego resulted in a big loss due to his public opinion about the company Herbalife. According to him, it was a fraud scheme company.
Purpose of investing is to make money, Not to be Proven Right.
Remember the rules of investing and must keep all the learning’s from the mistakes made by people.
4. Stanley Druckenmiller and investing that “fits”
Stanley Druckenmiller was one of the greatest macro stock investor who used to buy in millions and billions.
He usually used to do big trades in stock market, bonds and currencies. When he saw the .com bubble raising he out of curiosity invested more than 6 billions in a week. 3 weeks later losing 3 billion of his investments.
Lesson learned : Never invest in companies out of your knowledge. There will be times when your style of investing is out of favour but it will be okay, just a matter of time. You don’t need to change your style and do dumb investments.
Don’t invest because everybody is investing. Invest in your knowledge boundaries.
Don’t go with the crowd or the trend, pick out some sectors, study well enough to gain some confidence to invest wisely.
5. Benjamin Graham and Leverage
The Father of value investing Benjamin Graham also made mistakes which made him great.
Construct a portfolio so that you will capture enough of the upside in a good market position and so that you will survive a bear market position.
Construct an all season balanced portfolio.
These were all the five takeaways from the book Big Mistakes. Stay tuned for more upcoming values.